NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to J.P. Morgan Seasoned Mortgage Trust 2014-1 (JPSMT 2014-1):
--$249,769,000 class A-1 certificates 'AAAsf'; Outlook Stable;
--$50,000,000 class A-2 certificates 'AAAsf'; Outlook Stable;
--$19,397,000 class A-M certificates 'AAAsf'; Outlook Stable;
--$319,166,000 class A-IO notional certificates 'AAAsf'; Outlook Stable;
--$10,051,000 class B-1 certificates 'AAsf'; Outlook Stable;
--$8,464,000 class B-2 certificates 'Asf'; Outlook Stable;
--$6,525,000 class B-3 certificates 'BBBsf'; Outlook Stable;
--$3,879,000 class B-4 certificates 'BBsf'; Outlook Stable.
The 'AAAsf' rating on the senior certificates reflects the 9.50% subordination provided by the 2.85% class B-1, 2.40% class B-2, 1.85% class B-3, 1.10% class B-4 and 1.30% class B-5. Fitch will not rate the $4,585,332 class B-5 certificates.
Fitch's ratings reflect the high quality of the underlying collateral, the clear capital structure and the high percentage of loans reviewed by third party due diligence companies. In addition, Wells Fargo Bank, N.A. will act as the master servicer and U.S. Bank Trust, N.A. will act as the trustee for the transaction. For federal income tax purposes, elections will be made to treat the trust as one or more real estate mortgage investment conduits (REMICs).
JPSMT 2014-1 will be J.P. Morgan Mortgage Acquisition Corp.'s first transaction of seasoned prime residential mortgages in 2014. The certificates are supported by a pool of adjustable-rate mortgages (ARM) with an interest-only (IO) period of 10 years originated between 2004 and 2007. The entire pool was originated by Merrill Lynch Credit Corp. (MLCC).
As of the cut-off date, the aggregate pool consisted of 677 loans with a total balance of $352,670,332; an average balance of $520,931; a weighted average original combined loan-to-value ratio (CLTV) of 54.88%, and a weighted average coupon (WAC) of 1.2%. Rate/term and cash out refinances account for 58.4% and 29.7% of the loans, respectively. The weighted average current FICO credit score of the pool is 766. Owner-occupied properties comprise 83.4% of the loans. The states that represent the largest geographic concentration are New Jersey (15.5%), New York (13.7%) and California (8.7%).
KEY RATING DRIVERS
High-Quality Seasoned Mortgage Pool: The loans were originated by MLCC to high net worth borrowers who generally held brokerage accounts with Merrill Lynch, which was acquired by Bank of America. The collateral pool consists of ARM) with an IO period of 10 years originated between 2004 and 2007. Overall, the borrowers in this pool have strong credit profiles and low leverage as evidenced by current credit scores and loan-to-value ratios (LTVs) and substantial liquid reserves at origination.
Solid Performance History: All but 0.7% (six loans) of the pool has not had a delinquency during the past 36 months, which Fitch identifies as a 'clean current' loan. The six loans only had a 1x 30-day delinquency over 12 months ago, which Fitch identifies as 'dirty current'. No loans have been modified for performance issues. Fitch believes that the strong performance is reflective of a high credit quality borrower profile.
Payment Shock Exposure: While most of the loans are past their initial rate periods, they all face a payment increase from principal amortization, which can be sizable relative to the current payment. Borrower payments could also increase further should interest rates rise substantially from today's levels. The payment shock risk is mitigated by the qualifying interest-only payment at the higher of 1) the note rate plus 2% or 2) 8% under which borrowers were underwritten. Fitch also believes that the borrowers' strong credit profiles and substantial equity in the property indicate a greater refinance ability. Fitch applied a probability of default (PD) penalty of approximately 1.34x to account for the payment shock risk.
Geographic Concentration: Approximately 25.3% of the pool is concentrated in the New York-Northern New Jersey MSA, which resulted in a 1.08x PD multiple due to the concentration risk.
R&W Framework: Loan-level reps will be provided by Everbank, FSA (Everbank), while J.P. Morgan Mortgage Acquisition Corp. (JPMMAC) will be providing gap reps (for the period between loan acquisition and securitization close). Although not all seasoned loan-level reps are being provided or comply with Fitch's criteria, they all have strong mitigating factors. However, Fitch considered the transaction's reps and warranties (R&W) framework to be consistent with a Tier 2 quality, as review of the delinquent loans for possible breaches is at the option of the controlling holder and senior holders cannot override the decision nor do they have the ability to request a review if no controlling holder is present. For this reason, Fitch applied a small upward adjustment to its loss expectations.
Due Diligence Results, Findings and Mitigants: The due diligence review was conducted by Opus Capital Markets Consultants LLC (Opus) in general accordance with Fitch's criteria for seasoned loans. A full compliance review was performed that resulted in one loan graded 'C'. Fitch considered extended foreclosure timelines for 37.1% of the pool to account for potential collateral file issues. Given the seasoning of the loans, all have passed the statute of limitations for certain violations and evidence of recordation was confirmed by the custodian, Wells Fargo Bank N.A. (WFB). Everbank is making a rep that the original mortgages were recorded or sent for recording. For this reason, no adjustment was applied for recordation issues.
Clean Current Loan PD Adjustment: A credit was applied to the PD of loans that were current over the last 24 months. Fitch's model-projected PDs for clean current loans is more conservative than those projected from Fitch's roll rate analysis. For this reason, Fitch applied a small credit to clean current loans to better align the agency's model default projections with its roll rate expectations. The PD credit applied at the 'AAAsf' level is approximately 15%.
After Fitch determines credit ratings through a rating stress scenario analysis, additional sensitivity analyses are considered. The analyses provide a defined stress sensitivity to demonstrate how the ratings would react to steeper MVDs than that assumed at issuance as well as a defined sensitivity that demonstrates the stress assumptions required to reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
In its analysis, Fitch considered additional sMVD stress assumptions to those generated by the SHP model. These supplementary scenarios reflected base case sMVDs that aligned Fitch's 'Asf' sMVD stress assumptions with peak-to-trough market value declines experienced in the U.S. during the recent financial crisis (2007-2009). This is consistent with Fitch's view as described in its U.S. RMBS Loan Loss Model Criteria (dated December 2013, available on its website at www.fitchratings.com.), which associates the recent national housing recession and related performance observations with an 'Asf' stress. The result of this sensitivity analysis was included in the consideration of the loss expectations for this transaction. The sensitivity analysis resulted in a base sMVD of 20.5% from 27.1% using the first-quarter 2014 Case-Schiller home price data.
Another sensitivity analysis was focused on determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model projected 3.2% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted defined rating sensitivities, which determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'. For example, additional MVDs of 4%, 24% and 43% would potentially reduce the 'AAAsf' rated class down one rating category, to non-investment grade, and to 'CCCsf', respectively.
Additional information is available at 'www.fitchratings.com'.
In addition to the information sources identified in Fitch's
criteria listed below, Fitch's analysis incorporated data tapes,
due diligence results, deal structure and legal documents from
the 17g5 website available on 'www.structuredfn.com'.
Applicable Criteria and Related Research
--'Global Structured Finance Rating Criteria' (August 2014)
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 2014);
--'U.S. RMBS Master Rating Criteria' (July 2014);
--'U.S. RMBS Loan Loss Model Criteria' (November 2014);
--'U.S. RMBS Cash Flow Analysis Criteria' (April 2014);
--'Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers' (January 2014);
--'U.S. RMBS Surveillance and Re-REMIC Criteria' (June 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
U.S. RMBS Master Rating Criteria
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Cash Flow Analysis Criteria
Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers
U.S. RMBS Surveillance and Re-REMIC Criteria